FE Editorial : Wanted: An agri policy

SummaryWith exports doubling from Rs 42,000 crore in FY11 to Rs 82,000 crore in FY12 and then doubling again in H1 FY13 as compared to H1 FY12, India’s agriculture is clearly on a roll, of a sort never seen before.

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With exports doubling from Rs 42,000 crore in FY11 to Rs 82,000 crore in FY12 and then doubling again (actually 2.2 times) in H1 FY13 as compared to H1 FY12, India’s agriculture is clearly on a roll, of a sort never seen before. Indeed, as Commission for Agricultural Costs and Prices (CACP) chairman Ashok Gulati points out, in the last 12 months, India exported 10 million tonnes of rice for $6 billion, making it the world’s largest rice exporter, replacing traditional biggies like Thailand and Vietnam. And, with 1.7 million tonnes of buffalo beef exported for $3 billion in FY12, India has also emerged as the world’s largest exporter of beef; marine exports added another $3.4 billion, cotton $4.3 billion and guargum, the big surprise, netted another $3.3 billion—all of which ensured that, from just around 5% of agri-GDP in 1991, exports+imports are now up to 18%. In other words, India is on the verge of a big export boom, especially given that global agricultural output growth is projected to slow from a little over 2% per annum in the last decade to around 1.7% over the next one while global demand is expected to rise due to extra demand from bio-fuel feedstocks. The only thing spoiling this idyllic picture is sclerotic government policy that, for instance, banned exports of rice and wheat from 2007 to 2011.

If the bans were because of a grain shortage in the country, that would still be excusable at one level. But this is clearly not the case and, against the stipulated reserve stock of 212 lakh tonnes in October, reserves are at a whopping 666 lakh tonnes. According to Gulati’s calculations, the bloated excess stocks (as on July 1) added up to a cost of more than R1 lakh crore (that’s 1% of GDP). What makes things even worse is that, CACP’s rabi report points out, government policy is even driving out the private grain trade almost completely—apart from lowering efficiency levels in the trade, it also means the government’s costs rise dramatically as it has to procure all the foodgrains in the market. Government distortions range from very high local levies in states like Punjab and Haryana (around 10% of total food subsidy is spent on taxes in these states) to states like Madhya Pradesh offering additional bonuses that ensure private traders are completely priced out of the market—in major states like Haryana,